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Welfare-increasing third-degree price discrimination

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  • Simon GB Cowan

Abstract

The welfare and output effects of monopoly third-degree price discrimination are analyzed when inverse demand functions are parallel.� Welfare is higher with discrimination than with a uniform price when demand functions are derived from the logistic distribution, and from a more general class of distributions.� The sufficient condition in Varian (1985) for a welfare increase holds for these demand functions.� Total output is higher with discrimination for a large set of demand functions including those derived from strictly log-concave distributions with increasing cost pass-through, such as the normal, logistic and extreme value, and standard log-convex demands.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 652.

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Date of creation: 22 Apr 2013
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Handle: RePEc:oxf:wpaper:652

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Keywords: Third-degree price discrimination; monopoly; social welfare; output;

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  1. Iñaki Aguirre, 2006. "Monopolistic price discrimination and output effect under conditions of constant elasticity demand," Economics Bulletin, AccessEcon, vol. 4(23), pages 1-6.
  2. Simon GB Cowan & Simon Cowan, 2004. "The welfare effects of third-degree price discrimination," Economics Series Working Papers 205, University of Oxford, Department of Economics.
  3. I�aki Aguirre & Simon Cowan & John Vickers, 2010. "Monopoly Price Discrimination and Demand Curvature," American Economic Review, American Economic Association, vol. 100(4), pages 1601-15, September.
  4. Xavier Gabaix & David Laibson & Deyuan Li & Hongyi Li & Sidney Resnick & Casper G. de Vries, 2013. "The Impact of Competition on Prices with Numerous Firms," Working Papers 13-07, Chapman University, Economic Science Institute.
  5. repec:ecj:econjl:v:122:y:2012:i::p:332-338 is not listed on IDEAS
  6. Hal R. Varian, 2012. "Revealed Preference and its Applications," Economic Journal, Royal Economic Society, vol. 122(560), pages 332-338, 05.
  7. Simon Cowan, 2012. "Third-Degree Price Discrimination and Consumer Surplus," Journal of Industrial Economics, Wiley Blackwell, vol. 60(2), pages 333-345, 06.
  8. Aguirre Pérez, Iñaki, 2009. "Joan Robinson Was Almost Right: Output under Third-Degree Price Discrimination," IKERLANAK 2009-38, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
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